Capital Market Masterplan A Summary

1.

Introduction

1.1

What is the CMP?

The CMP is a comprehensive plan mapping the direction of the Malaysian capital market over
the next 10 years. Hence the CMP is intended to ensure that the capital market is well
positioned to support national economic growth and to meet future challenges from regional
competition and globalisation.
It articulates the vision, objectives and strategic initiatives for the Malaysian capital market to
successfully meet future challenges.
The CMP sets out 152 detailed recommendations to achieve its objectives and outlines the
framework for their implementation.

1.2

How did the CMP come about?

In formulating the CMP, extensive consultations were held with a wide range of market
participants, ministries, agencies, academics and independent consultants to ensure that the
views of all participants were incorporated in the CMP blueprint. This task was entrusted to
the Capital Market Strategic Committee (CMSC), which comprised representatives from the
Securities Commission (SC) and highly experienced local and foreign professionals from the
capital market. The SC Chairman was appointed by the Minister of Finance to chair the CMSC.
In addition, independent consultants were also engaged to assist in the exercise. The CMP
was presented to the Government in October 2000 and was officially released by the SC in
February 2001.

2.

Challenges for the Malaysian Capital Market

2.1

Key challenges

Challenges for the Malaysian Capital Market

Lingering effects of
the regional financial
crisis

Decline in
international
competitiveness

Slow recovery in
capital market
activity

Meeting the needs of a

growing economy

Funding needs
of issuers

Investment and
intermediation
needs of
consumers

Employment and
knowledge
development needs

Heightened global
competition for
business and
investment

Growing pools of
investable funds
Competition among
market institutions
and intermediaries
Usage of technology
and innovation
Development of
specific value-added
areas
Liberalisation

Changing demands on the regulatory framework and authorities

Lingering effects of the regional financial crisis

The regional financial crisis in 1997 had a significant adverse impact on the performance of
the Malaysian economy and its capital market. Due to decisive action by the government and
its financial regulators, the health of the economy and capital markets have been
substantially, albeit not fully, restored. The lingering effects from the crisis still remain and
foreign participation in the Malaysian capital market has also not yet fully recovered. These
developments underline the need for appropriate measures to be taken to ensure that it does
not unduly affect the longer-term growth prospects of the Malaysian capital market.
Meeting the needs of a growing economy
The capital markets ability to attract investment flows remains important to achieving strong
and sustainable economic growth.
As the market matures it will become increasingly important to actively ensure an efficient
and cost-effective environment for both issuers and investors alike. A stronger and more
diversified fund-raising environment is required to safeguard the economy against external
shocks.
From a broader perspective, there is a need to increase value-added by promoting the
growth of knowledge-based industries so that the country can continue on a sustainable
growth track within an increasingly dynamic global marketplace. The development of the
market for risk capital and the creation of a facilitative environment for high-growth
companies is needed to ensure a strong innovation base within the country.

Heightened global competition for business and investment

The pools of global investable funds are expected to grow as investors increasingly look
outside their home countries for investment opportunities. Technological advances are
increasing pressures on exchanges to compete for these global funds by attracting listings,
particularly those of high-growth and high-quality firms.
Market institutions are responding by merging and establishing alliances.They are increasingly
offering consumers greater variety and flexibility, such as through extended product ranges
and online trading.
Market intermediaries are also facing greater competition. Some regional markets now even
allow full foreign ownership to encourage the development of high-calibre finance
professionals and to build a critical mass of players and activity in these markets.
The recent trend towards deregulation has resulted in lowering transaction costs and an
increase in providing customers with added value and convenience in other countries. The
creation of large global l financial conglomerates and technological innovation by new
entrants present increasingly significant challenges for capital market intermediaries in
Malaysia.
Changing demands on the regulatory framework and authorities
Regulators who oversee the financial markets need to take into account the increasing
complexity and interdependence of financial activity at both the national and international
levels. These changes require a shift in traditional regulatory approaches away from
prescriptive rules to a more market-based approach.
2.2

Addressing these challenges major focus areas

Enhancing the value proposition for Malaysian issuers

The process of raising funds through each of these markets must be efficient and
competitive. The domestic capital market must be able to respond quickly and effectively to
global competition. Issuers within the Malaysian capital market must derive value recognition
and the breadth of markets and funding instruments must be further developed.
Improving the role of the capital market in meeting investors preferences
High standards of corporate governance must be practised. The investment management
industry must be robust and dynamic. The range of products must meet a more diverse
range of investor preferences and requirements.
Developing internationally competitive market institutions and intermediaries
Malaysia needs stronger market institutions to compete effectively with other regional and
international exchanges. Capital market intermediation must be efficient and innovative.
Corporate finance advisory services must be highly responsive to the needs of the corporate
sector.
Ensuring effectiveness of the regulation within the changing market environment
The regulatory framework must be able to adapt to a fast-changing market environment.
Enforcement capabilities must keep in step with the increasing complexity of financial
markets. As the financial market becomes increasingly integrated, the maintenance of
market-wide systemic stability is becoming an increasingly important objective for capital
market regulators.

Promoting value-added areas aligned with Malaysias comparative and competitive advantage
For Malaysia, one key market where it might have a competitive advantage is the Islamic
capital market. The trading of Islamic securities have grown strongly in recent years. Thanks
to extensive promotional efforts by the SC, there is increasing awareness and growing
acceptance of Islamic products, The potential market for Islamic capital markets products is
huge and and should be tapped.
3

Strategy to meet these challenges

It is envisaged that Malaysia will develop a capital market that is internationally competitive,
highly efficient, innovative and productive. It must provide Malaysian investors and issuers
with a wide range of products and services comparable with the leading financial centres in
the world. At the same time, Malaysia must also continue to strongly develop the depth and
breadth of all segments and services offered within the capital market, and develop
internationally competitive advantages.
Six key objectives have been identified that form the basis for the CMPs main strategic
initiatives and specific recommendations. These objectives are:

To be the preferred fund-raising centre for Malaysian companies

To promote an effective investment management industry and a more conducive
environment for investors
To enhance the competitive position and efficiency of market institutions
To develop a strong and competitive environment for intermediation services
To ensure a stronger and more facilitative regulatory regime
To establish Malaysia as an international Islamic capital market centre

To be the preferred fund-raising centre for Malaysian companies

The Malaysian capital market must offer issuers the ability to raise funds through a variety of
instruments commensurate with their maturities and risk profiles.
Initiatives have been formulated to ensure that the overall process of raising funds is efficient
and competitive. Measures will be taken to promote breadth in product markets and
instruments to satisfy the maturity and risk profiles of issuers. There will be appropriate
efforts directed at ensuring that there is sufficient depth in terms of liquidity and efficiency in
the secondary markets for issued securities.
To promote an effective
environment for investors

investment

management

industry

and

more

conducive

The investment management industry must be capable of meeting consumer demands for
greater efficiency, diversity and cost-effectiveness in the management of their funds. More
generally, the enhanced involvement of institutional investors is important.
At the same time, the investing community must have strong confidence in the quality of
companies they invest in. Corporate accountability is a key consideration. The quality of
mechanisms for corporate governance is vital to investor confidence. It is crucial that timely
and accurate disclosure and high standards of financial reporting are available for investors to
make informed investment decisions. A culture of shareholder activism is necessary to
complement efforts to enhance the capacity of the regulatory framework to enforce minority
shareholders rights, and to ensure companies exercise greater emphasis for maximising
shareholder value.

To enhance the competitive position and efficiency of market institutions

Market institutions in Malaysia need to be able to adapt promptly and appropriately to
external competitive pressures, as well as to the changing needs and demands of their
customers. This means that their business models must be fully aligned with the evolving
financial landscape. More fundamentally, they must provide investors with a liquid, efficient,
secure and transparent trading environment at competitive costs.
This will require appropriate restructuring to tap economies of scale, strengthening the
integrity of the market by raising the standards of corporate disclosure and market
surveillance. In short, market institutions must redefine their value proposition.
To develop a strong and competitive environment for intermediation services
Domestic capital market intermediaries must be able to offer internationally competitive
services to their customers. They need to be able to respond effectively to the impact of
changing consumer demands, technological developments and the increasing integration of
financial services.
In view of this, constructive competition is required in the Malaysian capital market
intermediation industry. This includes allowing a more comprehensive range of services and
products to be offered by capital market intermediaries. Measures will be taken to
progressively deregulate the pricing structures to ensure users of the Malaysian capital
market are able to access world-class services at reasonable cost.
To strengthen the domestic broking industry ahead of future liberalisation, efforts to
consolidate the industry and develop strong full-service brokers will be expedited. The
creation of one-stop capital market intermediaries promotes a substantially more competitive
market to the consumers benefit. Prudential standards, levels of business conduct and
quality of professional skills within the intermediation industry remain important priorities.
To ensure a stronger and more facilitative regulatory regime
Significant steps have been made to improve the regulatory framework since the
establishment of the SC in 1993. It is imperative that continuous efforts be directed towards
strengthening and enhancing the regulatory framework in line with the overall capital
markets development.
Therefore, several key strategic initiatives have been identified to ensure the gradual
implementation of market-based regulation across the capital market, regulatory parity and
consistency for capital market participants, strengthening enforcement activity and enhancing
systemic risk management.
The gradual adoption of a market-based system of regulation represents the greater use of
competitive market disciplines and processes, with minimum direct regulatory intervention, to
achieve regulatory objectives. At the same time, enhanced disclosure and transparency, as
well as greater regulatory accountability and dialogue, will be emphasised. Such a framework
will allow for greater flexibility, innovation and competition where needed, while maintaining
mechanisms to ensure high standards of investor protection and market integrity.
In addition, regulatory parity and consistency of treatment between all institutions and
participants offering similar capital market services and products is necessary to ensure a
level playing field for all participants, effective investor protection, and the prevention of
regulatory arbitrage.
Strong and effective enforcement of the regulations governing the capital market is important
to ensure that public confidence in the integrity of the market is preserved at all times, and

that systemic stability is not compromised. To complement these efforts, an explicit systemic
risk management framework will provide a co-ordinated and systematic approach to
strengthening the markets capacity to withstand systemic disruption.
Underlying all these initiatives, investor protection remains a priority. There will be continued
efforts to promote investor education and enhance investor empowerment. Further efforts
will also be directed at improving disclosure and transparency, and to improve the standards
of business conduct of market participants and regulated entities.
To establish Malaysia as an international Islamic capital market centre
Malaysia is well positioned to be an international Islamic capital market centre. It already has
an established market infrastructure and a lead over the other relatively nascent Islamic
capital markets.
Malaysias Islamic capital market would benefit from a comprehensive strategic programme to
further enhance its international competitive position.
The initial focus will be on the development of a wider range of competitive products and
services related to Islamic securities. To do this, efforts will be directed to enhancing liquidity
to create a viable market for the effective mobilisation of Islamic funds. In addition,
comprehensive efforts will be made to ensure that there is an appropriate and comprehensive
accounting, tax and regulatory framework for the Islamic capital market. There will also be
additional measures to promote the profile of the Malaysian Islamic capital market and
enhance the value recognition of the Malaysian Islamic capital market internationally.
4

Implementation of the Recommendations of the CMP

4.1

Phases in the implementation of the recommendations

The CMP can be characterised into three distinct phases.

2001
2002
2003
Strengthen domestic
capacity, and develop
strategic and nascent
sectors

2004

2005

2006

2007

2008

2009

2010

Further
strengthen key
sectors and
gradually
liberalise market
access

Phase 1

Phase 2

Further expansion and strengthening of

market processes and infrastructure towards
becoming a fully-developed capital market,
and enhancing international positioning in
areas of comparative and competitive
advantage
Phase 3

The implementation framework provides the schedule of implementation for the

recommendations, and identifies priority areas that will benefit most from early action. More
specifically, the framework:

Prescribes a mechanism for co-ordinating the implementation of the CMPs

recommendations, which addresses issues relating to the implementation process,
structure and phasing, and outlines the roles and responsibilities of parties involved;
Highlights the skills, capacity and resources required for implementation;
Suggests guidelines for regular performance monitoring and progress reporting; and
Describes the sustained efforts
communication to publicise the CMP.

required

for

change

management

and

public

The following figure sets out the approach to implementing the recommendations.
Implementation Process

Approval
of
Approve
Masterplan
CMP

Implement
Implement
Recommendations
Recommendations

Minister of
Finance

SC
Other relevant
Government agencies
Relevant market
institutions and other
market participants

Monitor
Monitor
Progress
Progress

Update
Update
Implementation
Masterplan
Plan

Report
Report
Progress
Progress

The overall progress of the implementation process is closely monitored by the SC, to ensure
that the recommendations are implemented and reviewed on a timely and efficient basis.
An Implementation Task Force established by the SC co-ordinates the implementation of
recommendations. Responsibility for the operational implementation of various
recommendations is largely delegated to Working Committees comprising representatives
from the relevant industry associations and other market participants from the private sector.
To ensure smooth and effective implementation, the SC appointed a Capital Market Advisory
Council (CMAC) to provide independent views and timely advice. Fifteen highly experienced
and prominent industry professionals and entrepreneurs were appointed to the CMAC.
In addition, the SC has formed a Capital Market Advisory Council comprising highly
experienced local and international professionals and prominent entrepreneurs to provide
independent views on the progress of implementation of the CMP and to advise on areas
where it may be necessary to fine-tune the recommendations to reflect evolving market
developments.